1. Dept. A $60,000 $40,000 Dept.C $80,000 $60,000 Total $140,000 $100,000 Sales Cost of goods sold Operating expenses: Salaries Rent Utilities Total costs Net income 8,960 3,000 2,350 $54,310 $ 5,690 12.960 4,000 3,350 $80,310 $ (310) 21.920 7,000 5,700 $134.620 $ 5,380 h15 *Utilities of Dept. B are allocated equally to Depts A and C because the space occupied by Dept. B was split equally between Depts A and C 2. No, Department B should not be eliminated. If eliminated, the combined net income would be $5,380; with Department B the combined net income would be $8,900 ($9,000 + $3,000 - $3,100). 3. Some of the nonquantifiable questions you might want to ask are: (a) Would sales of other departments be affected? (b) Would customer goodwill be lost? (c) Can employees in Department B be released without effects on company morale? 5.13 As a result of an expansion program, Whitworth Enterprises, Inc., has excess capacity of 20,000 machine hours, which is expected to be absorbed by the domestic market in a few years. The company has received inquiries from two companies located in another country. One offers to buy 210.000 units of product F at $0.60 per unit; the second offers to buy 300,000 units of product D at $0.70 per unit. Whitworth Enterprises can accept only one of these two offers The estimated costs for these products are as follows: F D Materials $0.25 $0.35 Direct labor 0.10 0.12 Factory overhead 0.20 0.28 Total estimated cost $0.55 $0.75 Factory overhead is applied on a machine hour basis at $5.60 per hour, 75 percent of the factory overhead is estimated to be fixed. No selling and administrative expenses would be applicable to either order; transportation charges are to be paid by the buyer. Which order should the company accept? (CGA, adapted)